It was right after the Dot-com crash, and we were strapped for operating capital. I was frustrated with a languishing business situation that seemed to offer no opportunity for real growth. Sales had bottomed out and I didn’t have the capital to expand our software line in a way that I knew would pay off. I knew that if I invested funds in a new product that the market currently lacked and took the company to the next level, there would be significant gains. But funding that leap to nirvana was the figurative bump in the road. Entrepreneurs often have multiple pots on the stove. They have a manic energy that naturally spins off in numerous directions if not strongly curbed. As I continued to manage our ship and crew on a day to day basis, I dipped my toe into another field as well. On the chance others would find my business plans interesting enough to invest in, I approached multiple angel investment groups and stumbled on a small network of individuals in Milwaukee, Wisconsin. I was invited to an elegant dinner where I delivered a concise PowerPoint presentation outlining a detailed vision for our company. I explained that our software was so loaded with powerful functionality that a leading CAD company in the USA would be foolish not to buy the company. In fact, I suddenly asserted with bravado, “I am 100% certain that this leading, multi-national corporation will buy our company in the very near future!” (I am not entirely sure what motivated me to blurt this out, but I know my belief was sincere and truthful.) At any rate, this declaration sent a snicker of amusement through the group. One retired business person in the crowd snorted loudly, shook his head skeptically, and took a long swig of his beer. (Remember, this was in Milwaukee.)
How Angel Investing Works
By some accounts, angel investing is on the upswing. Some estimate that presently several hundred thousand private investors are active in the United States. Unlike venture capital, which is a fund representing many individual investors and is managed by a professional known as a venture capitalist, angel investors manage their own investments. Often several accredited investors will organize into a local group where pooling funds and approaching individual start-ups collectively offers its own efficiencies. The growth of this sector has been nothing short of remarkable and interested seed investors are using every means available to reach out to hungry start-ups. Websites that look a bit like dating sites now display pages and pages of individual investor profiles with key information on everything from area of expertise (e.g., manufacturing, real estate, IT) to potential sums for investment. You can also see what your potential angel investor looks like by checking out the attached profile photo. An investment deal usually translates to either an ownership interest in the start-up or convertible debt. Many investors are also interested in the prospect of offering their expertise and experience to the mix, particularly if they come to the table with an entrepreneurial history of their own. This group of angels turned me down. It turned out later that this network had recently invested in another water-related (manufacturing) company and were not interested in offering capital to two such enterprises. Ah well, another minor set-back in this entrepreneur’s long and winding road. I was determined not to let the set-back discourage us and, as it turns out, things were about to get a little interesting anyway.
A Fork in the Road Leads to Greener Pastures
As part of a routine business trip in the south(west), I visited a national trade show that was occurring at that same time. On a lark, I approached the CEO of this large, multi-disciplinary company I had referred to during my meeting with the angel investors and told him point-blank that his company would soon acquire our own promising little operation. I don’t remember what his reaction was, but maybe my nerve both baffled and intrigued him. But to me it was a no-brainer. This was a corporation whose line of products complemented our own; I knew that if our company was to be acquired, this one would be a perfect fit. To everyone from this company whom I happened to meet, I shamelessly peddled our software and company. Oddly enough and true to my predictions, our company was acquired by this corporate giant some time later. For a summary of how this business relationship fared, please see my post here.
This post is not meant by any means to dismiss the valuable role angel investors play in the entrepreneurial market today. They can and do play a vital role in injecting cash into promising operations that sorely need funds but have few options to get it.